EBA reports on benefits and risks of RegTech

The European Banking Authority (EBA) has issued its assessments of the current benefits and risks of the use of regulatory technology (RegTech) solutions in financial services.

The report published by the EBA looks at the application of technology-enabled innovation for regulatory, compliance and reporting requirements and provides analysis into the five most frequently used RegTech segments: Anti Money-Laundering/Countering the Financing of Terrorism (AML/CFT), fraud prevention, prudential reporting, ICT security and creditworthiness assessment.

The deep-dive on RegTech for prudential reporting identified a need for wider use of technology and raising awareness of possible use cases for RegTech in supervisory reporting.

The analysis found that financial institutions who have implemented RegTech highlight enhanced risk management, better monitoring and sampling capabilities, and reduced human errors as the main benefits of use of the technology.

Meanhwile,RegTech providers emphasise the ability to increase efficiency, quell the impact of ongoing regulatory change and improve effectiveness.

The report states: “The evidence suggests that the majority of challenges to RegTech market development are internal factors within financial institutions and RegTech providers.

“These relate to data (quality, security, privacy), interoperability and integration with the existing legacy systems, a lack of financial institutions’ application programming interface (API) capabilities, costly and often lengthy and complex due diligence processes, and limited awareness of RegTech solutions.”

The EBA added that the current legal and regulatory framework has not been identified as the most material obstacle for RegTech adoption. However, it said a lack of common regulatory standards across Member States could pose barriers for wider market adoption of RegTech solutions across the Single Market.

As a result, the EBA proposed the following steps to be taken to support the adoption and scale-up of RegTech solutions:

-activities to deepen knowledge and address any skill gaps among regulators and supervisors on RegTech; support convergence of supervisory practices across the EU in the treatment of RegTech; and provide clarity on supervisory expectations;
-further steps to harmonise the legal and regulatory requirements, where appropriate;
-and, further leverage the role and expertise of the European Forum for Innovation Facilitators (EFIF) and the national regulatory sandboxes and innovation hubs as a safe testing environment for RegTech solutions.

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